The Economic Activity of Canada

According to economic experts, Canada has traditionally had one of the most resilient economies amongst the world’s developed nations. This success stems largely from a better regulated and less leveraged financial market—a market that, throughout the history of the nation, has not allowed debt levels to spiral out of control, and one that has always relied on the vast depth of the country’s natural resources. The tremendous variety of some of the world’s most treasured natural resources found in Canada are exported primarily to the United States and Western European nations, but in recent years there has also been increasing demand for these resources and products from China and several other emerging markets around the globe.

While exportation only represents about one-third of Canada’s overall economic output, the stability of the country’s financial markets have prevented exports from crumbling (even during the great global recession that began in 2008), thus supporting a steady level of consumer domestic spending

In the following article we will examine the economy of Canada in some detail, beginning with a section on the nation’s extensive economic history. We will follow that with a discussion of Canada’s economy in present day society, highlighting the strengths and weaknesses of said economy as seen by some of the world’s foremost economic experts.

Canada’s Economic History

The Kemess Mine in British ColumbiaThroughout Canada’s long and storied history, its economy has always revolved around the exploitation of natural resources. Consequently, the country’s citizens have sometimes—although not very flatteringly—been referred to as “drawers of water and hewers of wood.” Quite simply, the Canadian economy has consistently revolved around commodities, namely precious natural resources like timber, oil, gas and a variety of agricultural products. In the early to mid 1900s, however, the introduction of manufacturing added to and further bolstered the Canadian economy, although since the 1990s, many manufacturing jobs have been in a steady decline, save for a few select industries that continue to do well.

Colonial Canada

Although now a distant memory, the large region now known as Canada was once a colonial possession, first of France, and them of Great Britain. During French rule, in the early 18 century, the colonists were mainly concerned with Canada’s booming fur trade, especially in the country’s most northern territories. Hunting was considered big business, not so much for meat, but for the variety and quality of furs it produced, from beavers to bears, all bringing a heavy price on the open market.

When Britain defeated the French in the 1759 “Battle of the Plains of Abraham” conflict, the economic interest in Canada shifted from furs to the country’s vast array of prized natural resources. During British colonial rule, the people in the newly established colonies in Canada worked tirelessly to cull, and supply Britain with various raw materials. In turn, the British transformed these raw materials into a wide array of manufactured goods, which they then sold back to the colonies at a hefty profit. By the onset of the 1800s, the subduing and relocation of the Plains Indians, as well as the modern settlement of the prairie, enabled the British to develop a massive agricultural export industry in the West, focusing particularly on wheat and other grains.

The Birth of Manufacturing in Canada

When Canada—as a nation—officially came into being in 1867, the pace of settlement began to increase exponentially, as did the development of the country’s manufacturing industries. When Britain and other Western powers became involved in the “Big One”—World War I—in the early 1900s, the situation brought a high demand for manufactured goods from Canada, especially armaments. This unfortunate event in World History marked the commencement of the booming Canadian arms industry—an industry that even to this day continues to thrive.

It was also during this period in history that the manufacturing of automobiles became an important component of the Canadian economy. Canadian automobile and truck manufacturers partnered with their United States counterparts and, later, the Japanese manufacturers to create a booming industry. Ontario, Canada became the hotbed for Canadian automobile manufacturing, as well as for several other industries, making products that were highly prized and desired around the globe.

The Canada-U.S. Free Trade Agreement (1989) and the North American Free Trade Agreement (NAFTA) (1994)

In 1989, “free trade” came to Canada, although not without its fair share of controversy. The Canada-U.S. Free Trade Agreement, which ultimately expanded into the much publicized NAFTA agreement, essentially removed the government’s ability to systematically regulate the market. Among other aspects, these two significant agreements put a stop to the practice of levying expensive protective tariffs (taxes) on imported merchandise, thereby making consumer-based goods from the United States (and Mexico) much more affordable—in some cases—than goods manufactured within the country of Canada.

The Canada-U.S. Free Trade Agreement and NAFTA also eliminated the government’s ability to subsidize goods from Canada in the event those goods were to enter other markets. Lastly, the two agreements helped to greatly diminish the government’s ability to regulate its natural resources—if doing so would substantially interfere with a given corporation’s profits.

Canada: The Economy Today

According to the latest available statistics, Canada currently has the tenth largest economy in the world. This is no small feat considering the country is only home to about 35 million people. As one of the G8 countries, Canada is one of the world’s richest nations in terms of its Gross National Product (GNP), though over the past thirty years there has been a polarization of wealth in the country, with most of the growth near the top 10 percent. Today, Canada has the lowest corporate tax rates among all G8 nations. Low income Canadians, however, have generally seen their incomes and purchasing power decline since the early part of the 1970s.

The Economic Impact of Oil and Gas (the Energy Sector) on the Canadian Economy

Oil Rig in CanadaCanada is one of the few exporters on the globe dealing directly with energy sources. The country possesses some of the world’s largest oil and gas industries on the planet, products that are mined using a variety of techniques. For example, the Athabasca Oil Sands in Alberta, Canada are the world’s second-largest oil reserves outside of Saudi Arabia, although their development and mining has been a highly controversial subject due to the huge, and quite destructive environmental impact that comes with extracting oil from them.

British Colombia is also a major player in Canada’s energy sector. This region, in Canada’s southwest, has developed a very profitable off-shore oil industry, as has Newfoundland, a region that has helped rebound the nation’s economy after the collapse of the fisheries in the latter part of the 20 century. Saskatchewan and the Northwest Territories have also had a hand in the production of oil and gas, while Quebec is renowned for its hydro-power exportation.

Agricultural Products and the Canadian Economy

As it has for more than a century, Canada continues to be one of the world’s premier exporters of agricultural products. As we mentioned, the largest agricultural markets in the country center on the production of wheat and other grains. The prairie lands of Canada, especially Saskatchewan, serve as the hub for the wheat industry. With a few exceptions, small farms in these areas have now been replaced with large agribusiness centers employing thousands of Canadian workers.

Mining and the Canadian Economy

The second largest country in the world by total area, Canada is literally a giant in the world’s mining industry. Few people know (including most Canadians) that about 75 percent of all mining companies in the world are Canadian. Some of the most well-known—and most profitable—mining companies either doing business in Canada or based in Canada, include Teck Cominco, Barrick Gold, Agrium, Suncor,Goldcorp, PotashCorp, Cameco and Lundin Mining. Despite the capital these companies bring into the Canadian economy, many of them have recently come under fire from human rights groups in the country, such as Mining Watch, for their impact on community health and the environment, both in Canada and in foreign countries.

The Manufacturing Industries in Canada

Although manufacturing was once one of the strongest sectors in the Canadian economy, this is no longer the case. As a result of Canada’s Free Trade and NAFTA agreements, as well as a rising Canadian dollar, manufacturing has been in decline in Canada for the past 30 years, hitting the Ontario region of the country particularly hard. Many manufacturers have been bought out by United States corporations or transferred jobs abroad, mainly to Asia where labor is cheaper. Garment manufacturing, for example, now takes places almost entirely overseas, and the automobile sector has also shrunk considerably

There are a few manufacturers that have continued to do well in Canada, despite the developments of the past three decades. Large manufacturing companies such as Bombadier, a Quebec-based manufacturer of transportation equipment, and Magna International, which manufactures car parts, have continued to thrive in Canada’s topsy-turvy manufacturing sector.

Canada remains as one the world’s giants in the research and manufacturing of weapons and arms supporting industries. The majority of research and manufacturing facilities are centered in the Ottawa region of Canada, where the National Research Council (NRC) was first established during World War I. The NRC conducts research for weapons development and weapon systems. The largest manufacturer of arms in Canada, and one of the top 100 manufacturers in the world, is Canadian Aviation Electronics Ltd. Other armament and weapons supporting companies include General Dynamics Canada, SNC Lavalin, and Canadian subsidiaries of U.S. companies, including General Motors Defense and Raytheon.

Banking and the Canadian Economy

For many years now, the most successful Canadian businesses by leaps and bounds have been the banks, which enjoy a virtual monopoly in Canada. The “Big Five,” banks, as they are known in Canada, consist of the Royal Bank of Canada (RBC), Toronto Dominion Bank (TD-Canada Trust), Bank of Nova Scotia (ScotiaBank), Bank of Montreal (BMO), and the Canadian Imperial Bank of Canada (CIBC).

During the world financial crisis of 2008-2009, Canadian banks fared best among their other G8-nation counterparts. Some attribute this to the fact that they were more strictly regulated by the Canadian government and thus prohibited from taking on the sorts of risky investments that spelled absolute doom for many of the large financial institutions in the United States.

Canada’s Service Sector

According to economists, the service sector in Canada is directly responsible for providing about 75 percent of all Canadian jobs, though the large portion of these jobs are in the retail sector and considered low-wage by Canadian standards. The second-largest category of service jobs in Canada are in the business sector. This sector includes services such as real estate, communications and financial sector services. Educators and health care workers make up the third-largest segment of service jobs in Canada, while high-tech workers in fields such as telecommunications, engineering and IT comprise the fourth-largest sector of service workers.

The Canadian Dollar in the Canadian Economy

Canadian farmDue to the 1994 passage of NAFTA, and the withdrawal of governments from actively managing the economy, the Canadian economy has become much more dependent on foreign investment (United States corporations, etc.) to create jobs. Consequently, it has been in the best interests of Canada and its fiscal policy to keep the value of the Canadian dollar low in order to attract businesses looking for cheaper labor costs.

As an example of this, during the 1990s, when the Canadian dollar (the “loonie”) tended to hover just above 60 cents to the United States dollar, the Canadian film industry benefited tremendously, as big Hollywood studios found it much more affordable to move their productions north of the border into Canada. When the Canadian dollar rose again in value during the 2000s, at one point even reaching parity with the United States dollar, many Canadian film workers found that the prospect of attaining work was spotty at best.

Most economists in Canada now put the optimal value of the Canadian dollar at around 80 cents—low enough to attract investment, but high enough to significantly diminish purchasing power abroad.

Canadian Economy: Key Stats and Figures

As of the last census, Canada had a permanent population of approximately 34.4 million. The Gross Domestic Product for the nation, as measured by purchasing power parity, is 1.4 trillion, representing 2.5 percent growth since 2012, the largest jump since the onset of the global recession in 2008. When broken down according to the population, the GDP per capita is $40, 541.

Canada has an overall unemployment rate of 7.4 percent, just slightly lower than its neighbor to the south. Inflation currently sits at about 2.9 percent, and the FDI inflow is $40.9 billion.

The economic freedom score in Canada is 79.4, making its economy the 6 freest in the 2013 Index. Its overall score of 0.5 points is lower than last year, reflecting declines in freedom from corruption and business freedom that are only partially offset by a noteworthy improvement in the management of public spending. Canada continues to boast the freest economy in the North American region.